Trade talks ended, on Friday, with the Chinese representatives, that were meeting in Washington with the U.S. trade team. There was a lot of anticipation all day, as rumors were flying of a possible truce that might precede a real deal. The Dow Jones had crossed 500 points during the day as the excitement built that news was coming. In short, the U.S. and China have agreed to proceed in two phases and to delay the upcoming tariffs this month. President Trump stated that it will take 3-4 weeks to "paper" the first phase of the agreement which will include more purchases of U.S. agricultural products. There were some talks about currency buying, and the lowering of regulations on financial services companies in China. Some tariff increases were suspended. There was no decision on the Dec. 15th increase of Chinese goods that included technology products. Huawei was not part of the discussion as we expected, since this is a sensitive issue for China. And of course, there was a light comment on Hong Kong that things might be getting better.
This goes along with what we have projecting recently that we were much more likely to see this type of a "mini-deal" that would calm markets and let’s face it, shift the focus from impeachment. If there is a phase two its more than likely that we will see discussions to go on for a much longer period. The Dow ended up 319 points by the time the market closed, Friday, as the champagne that was popped had no bubbles. The market was hoping for more, but this is a positive move for now. Trump and Xi are meeting at a summit, in November, where we might see the phase one signed. Is this also a political move to solidify the Republican base, I would say so. The market will be closing watching that this is not another head fake by the administration. Any slight pullback on this "mini-deal" will disappoint market-watchers.
In summary, this is a good move ahead of the Q3 earnings season. We are hoping to see phase one and two signed as that should ease a some of the market volatility, but it won’t stop the tweets.
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Regards,
John Anagnos
Managing Principal
Chief Investment Officer
AETOLIA CAPITAL LLC
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